On the Macroprudential Policy Stance in an Emerging Economy

Our paper examines the macroprudential policy stance for the Romanian economy by considering simultaneously, unlike other papers, how borrower (Loan-to-Value Instruments) and capital-based instruments (Countercyclical Capital buffers, or CCyB) can be used together. We propose a forward-looking rule with lagged expectations for the CCyB, which is aligned with the European Systemic Risk Board's recommendation regarding the moment of decision and implementation. Our paper also contributes to the literature by proposing a shock structure that is able to replicate that financial cycles are more volatile than economic cycles. Our main finding is that policy makers should comprehensively assess the resulting effects when deciding about the macroprudential policy stance.